Discussing what to monitor should precious metals begin to show weakness.
Gold and other precious metals witnessed historic downside for a single trading day during Wednesday’s trading, pulling precious metals back slightly from all-time or multi-year highs and historically overbought levels. While the technical picture for many precious metals remaining strong for the time being, the question of when their recent run may end is likely a looming question for advisors for their clientele. Nasdaq Dorsey Wright is not in the predicting business, but there are a variety of tools and indicators that can be utilized on the platform to help keep a pulse on assets to interpret if leadership is continuing or if weakness is beginning to show.
From an intermediate-term perspective, precious metals have fallen from the top ranked asset group (out of 134) on the Asset Class Group Scores page after reaching a 17 year high at 5.4 (out of a possible 6) but continue to maintain a strong 4.75 group score. The recent drawdown in group score brings precious metals back to levels seen in August, but remain elevated from a historic perspective, highlighting the sustained strength. With funds like the SDPR Gold Trust (GLD) and iShares Silver Trust (SLV) still maintaining positive trends on their point and figure trend charts and showing positive long-term RS versus the market and its peer group, investors will be monitoring chart patterns, moving averages, and near-term relative strength for potential cracks.
On the default trend chart, GLD continues to maintain a buy signal and trades well above its short-to-long-term moving averages, while SLV now resides on a sell signal. While SLV maintains above the major moving averages, the fund has reversed into Os on its market and peer RS charts. This signals near-term underperformance by SLV, but long-term relative strength continues to favor Silver. Additional sell signals on the trend chart for SLV would be a catalyst for further technical weakness. Meanwhile, GLD continues to maintain positive long-term and near-term relative strength against the market and its peer groups, so reversals into Os on the RS charts along with a return to a sell signal would be initial signs of further weakness in the near-term.
While there are a multitude of other relative strength charts that could be monitored for further weakness out of precious metals, among the analyst team’s favorite is to compare an asset to our near-term money market proxy MNYMKT. Both GLD and SLV maintained long-term relative strength buy signals against MNYMKT and still reside in a columns of Xs, indicating both near and long-term relative strength over the cash proxy. SLV does reside within one box of reversing into Os but still maintains its column of Xs as of close on 10/23. Given the extended positions on both RS charts, investors may see brief periods of under and the outperformance in order for the charts to exchange columns and allow for a potential signal change (if it were to occur) to happen closer to current prices.
As noted, precious metals continue to maintain a strong technical picture and likely hold a place within many client portfolios. Today’s piece was meant to highlight a variety of charts and metrics investors should monitor in order to identify weakness whenever it may appear.
